Look at my balance sheets: ‘King Harry’

By Duruthu Edirimuni

V.P. Vittachi, Chairman Distilleries Company of Sri Lanka (DCSL) was sacked last week by ruthless magnate Harry Jayawardene, in what is widely seen as an illegal move but that didn’t deter the market from pushing the company’s share price up on Friday.
The stock reached a high of Rs 97 and closed at Rs 94 on Friday, up two rupees from Thursday.

Speculation was rife in the industry as to whether Jayawardene will flex his muscles on his former buddies and remaining partners, Rajpal Kumar Obeyesekere and Zaki Alif. This turn of events was stewing since 2003, when Vittachi, Obeyesekere and Alif ganged up against Jayawardene, who had upped his stakes in the company and was quietly building a business empire that was spreading its tentacles into a number of sectors.

Vittachi, still the Chairman at both Milford Exports and Stassen Group and its two main directors, Obeyesekere and Alif who with Jayawardene left the old Consolexpo state company to set up Stassen, is accusing their ‘old chum’ of random and impulsive decision taking and acting hostile towards them in more than one gesture . All this while the trio stuck it out with him for the sake of both loyalty and unity, according a source close to the company.

He said that the move to appoint Damian Fernando, who was formerly heading Finance at DCSL as a director of the company at its board meeting (without the item being on the agenda), antagonised Vittachi, who wrote to the company secretary not to take up any item that is not on the agenda.

The source said that Jayawardene had amended Vittachi’s ‘Chairman’s statement’ in 2005 DCSL annual report, which the latter refused to sign. In a classic ‘tit-for-tat’ gesture (which by now he is famous for), Jayawardene had removed the chairman’s statement from the report.

The source further revealed that since the report was conspicuously absent from the annual review, the shareholders, industry sources and the public at large raised questions and Jayawardene’s stubborn move angered Vittachi.

Quite chirpy after the DCSL AGM on Wednesday when The Sunday Times FT caught up with Jayawardene to ask whether he was unruffled about the ‘cowboy image’ that he presents to the public, he said, “I don’t care. Ask them to look at the balance sheets of the performing companies.”

A stock market analyst said that this shows that he is the most invincible business tycoon in the country today.

When Jayawardene was asked whether he does not care about the ruthless tag, he said, “You should be when in business.”

In the DCSL Company Articles there is provision for its holding company, Milford Holdings to nominate or remove directors, but the Managing Director has to get the consent of the other directors to do so. “This is a practice which he has not followed,” the source said, adding that could be illegal.

He said that when Obeyesekere had vociferously objected to the appointment, Jayawardene had said, “I rule like a king.”

At the AGM, K.C. Vignarajah, a shareholder regretted the absence of the Chairman’s review in the report, which is usually considered as a fairly independent overview, as apart from the Managing Directors presentation of their Executive Directors / Management actions and perceptions.

Jayawardene, responding from the chair, stated that the earlier chairman had relinquished duties to which Vignarajah commented that it was an unsatisfactory answer.

Vignarajah next pointed out that 10 years ago the dividend payout was 33 percent, it has progressively decreased and today it was slightly less than 10 percent. “The recent budget proposals indicated the implementation of the provisions to tax the difference between 33 1/3 percent and the actual dividend payout. The absence of issue of Bonus shares, for a period of 10 years, was also a subject of deep regret,” he said.

He also charged that the balance sheet did not show a true and fair view of the assets, as they had not been revalued for over 10 years though it was required to be done every five years.

Vignarajah also requested an answer from the auditor’s representative, on the valuation of assets, who feebly stated that it was upto the company to do it to which he retorted that the Auditors had to take responsibility, and at least draw attention of the shareholders and the public to this serious flaw in the proper presentation of a fair view of the net assets value of the company.
Vignarajah pointed out that the Net Assets per share was grossly understated due to the fact that the revaluation of assets had not been done, and therefore seriously misled the investing community.

To his classic cowboy style, Jayawardene said, “You (Vignarajah) have taken me to court in the Commercial Bank case, and here also if you are not satisfied then you can take me to court.”

Vignarajah also pointed out that the appointment of the auditors was not on the agenda when Jayawardene stated that the Auditors KPMG had already been appointed by the Board of Directors and the resolution before the house was only for authorising their remuneration to be decided by the Board of Directors. Vignarajah stated that was an incorrect action and that it was a fundamental requirement and of a great importance towards at least nominally encouraging their independence that the auditors be appointed by the shareholders at the AGM.

Distilleries Company of Sri Lanka (DCSL) was originally a state owned business venture known as the State Distilleries Corporation which was privatised and incorporated in 1989, by taking over the Assets and Liabilities of the State Distilleries Corporation.

In 1992 the majority holdings of the DCSL was sold on the Colombo Stock Exchange to the highest bid and in February 1992, the Stassen Group took over the controlling interest of the company.

Jayawardene owns 60 percent of Milford Exports, with Vittachi, holding 20 percent and directors Obeysekere and Alif own 10 percent each.
The trio is also accusing Jayawardene of buying Aitken Spence, Sri Lanka Insurance Corporation (SLIC) and Lanka Bell without board approval.

Last February, the three directors of Milford Exports (Ceylon) Ltd decided to go to courts against Jayawardene and were seeking to liquidate the company and all its associate firms, after negotiations between lawyers of the two parties failed to resolve the dragging controversy out of courts.

“It is impossible to run the company the way it is,” he added. He said that the anti-Harry camp is trying to take charge of the situation, because they are smarting.

However, the tardy dispute has got cynical tongues wagging. “Harry has proven his prowess. It is misleading to even assume that they will do ‘anything’,” an industry source said. Others echoing his comment were unanimous in reiterating the fact that the three directors had ample time to ‘do’ something, if they had enough evidence to ‘bring him down’.

“He has clearly violated the rules, but it remains to be seen how far the other side will go to, to bring him to task,” a source said.

“Now it is more a matter of honour than a matter of justice,” he said, adding that it is a classic case of Jayawardene getting rid of his trusted cronies.